Your home is one of the biggest financial commitments in your life. And unless you’re blessed to have paid for it in full, it’s going to be one of your biggest liabilities. That’s why for HDB homeowners paying their mortgage with CPF savings, you have the option of the Home Protection Scheme.
What is the Home Protection Scheme?
The Home Protection Scheme, or HPS, is a mortgage-reducing insurance policy meant to protect CPF members and their families should something serious happen.
That means if you die, suffer from a terminal illness or total permanent disability, the Home Protection Scheme will ensure that at least your share of the mortgage is covered.
Your coverage will last until you turn 65, or until the mortgage is fully paid up, whichever is earlier.
For example, if you are paying 50% of the monthly home loan repayment through CPF, and your partner is paying the other 50%, then HPS can cover at least your 50% should something serious happen to you before you turn 65.
In this way, your partner isn’t burdened by having to cover your share.
Note that this insurance policy only covers your mortgage repayments. It is not to be confused with fire insurance or home contents insurance.
Can anyone apply for the Home Protection Scheme?
No, it only covers HDB homeowners. That means if you own an executive condominium (EC) or other form of private property, you will not be eligible for the Home Protection Scheme.
Is the Home Protection Scheme compulsory?
The HPS is compulsory if you are using your CPF savings to pay for your HDB flat. While you can apply to be exempted from HPS, you will be forced to take it up again if your alternative coverage is insufficient. I’ll explain more in the next section.
If you are not using your CPF savings to pay for your HDB, you do not need to be covered by the Home Protection Scheme, though you should still consider it, or one of the alternatives.
How can I be exempted from the Home Protection Scheme?
You can apply to be exempted from HPS but you must have an insurance policy to replace it. It can be one or more of the following:
- Whole life policy
- Term life policy
- Endowment policy
- Life rider (attached to a basic policy)
- Mortgage Reducing Term Assurance (MRTA) or Decreasing Term Rider
Essentially, you must have one or more of these policies that already cover your outstanding housing loan, up to the full term of the loan, or until you reach 65 years old, whichever is earlier.
However, if at any time these policies are discontinued or the amount assured is insufficient to cover your needs, then HPS will be reinstated.
If you get sufficient coverage again, you will need to reapply to be exempted from HPS. Otherwise having both this policy and HPS would mean you’re paying more premiums and be overinsured.
How are HPS premiums calculated?
Your HPS premium is determined by several factors:
- Age and gender
- Loan amount
- Loan tenure
- Whether you’re on an HDB loan or bank loan, and
- How much coverage you need
The CPF website provides a premium calculator to help you figure out how much premiums cost.
Using the premium calculator, let’s consider a married couple, both born in 1988 and looking for 50% coverage each for their $400,000 HDB loan over 20 years.
This means that if either one dies or is seriously ill or disabled before the HDB loan is fully paid, half of the outstanding loan will be immediately covered.
To get this kind of coverage, the couple would pay a combined premium of $272.40 a year.
Premiums for the Home Protection Scheme will be deducted automatically from your CPF Ordinary Account (OA). The good people at CPF will let you know if you have insufficient funds in your OA to pay the HPS premium.
And if you’re lucky, you might even enjoy some premium rebates when the economy is doing well.
What’s this I hear about the Home Protection Scheme premium rebates?
In January 2020, over 760,000 people received HPS premium rebates totaling $640 million. This was supposedly because of “better than expected investment gains and lower than projected claims”.
In a news release, the CPF Board said “about half of those eligible are expected to receive $500 or more” from the rebate exercise.
But before you think that these rebates happen often, this is only the 6th time. The last rebate came in November 2015. And before that? In 2006!
Should you opt to be exempted from HPS?
Whenever there are options, you should always consider the pros and cons of each. Since you have the option of being exempted from HPS if you have an alternative insurance policy, let’s see how HPS compares.
Because comparing multiple policies might require a much longer essay, let’s just look at HPS’ closest competitor, mortgage-reducing term assurance.
Examples of MRTA in the market today include: Income’s Mortgage Term policy and Manulife’s ManuProtect Decreasing.
Let’s compare HPS and MRTA on the following criteria:
- Premium amount
- Interest Rate Options
- Policy Term and Premium Term Flexibility
- Joint Lives Application
Are HPS premiums more competitive than MRTA?
We’ve seen earlier that a couple, both born in 1988, and with a $400,000 mortgage loan and looking for 50% coverage over 20 years, would have to pay a combined premium of $272.40 a year.
Now, assuming they instead took up a mortgage reducing term assurance policy for the same period of time. That means the MRTA policy is for 20 years and covers each of them for $200,000 for death and total permanent disability.
Their combined premium would be anything from a low of $241 to a high of $416, with the median premium being $358.
You can see that while HPS premiums are relatively competitive with most MRTA policies, they’re not the lowest option in the market.
What interest rate options are available between HPS and MRTA?
The HPS premium is determined by the type of loan that you are currently on. If you are taking an HDB loan (currently at 2.6%) you are given one HPS premium rate. If you are taking a bank loan, you will get another HPS premium rate based on the “market rate” – the average of the non-promotional HDB housing loan rates of the three local banks, DBS/POSB, OCBC and UOB.
In fact, your HPS premiums will be higher if you are on a bank loan! This is supposedly to factor in the long-term volatility of bank loans.
In contrast, most MRTA policies in the market today offer you a range of interest rate options – typically from 1% to 5% to ensure sufficient coverage. This level of flexibility is important – after all, a 2% option will give you a cheaper premium than the 5% option.
How flexible are the policy terms for HPS and MRTA?
Both HPS and MRTA offer flexible policy terms, but MRTA policies are more generous with their coverage.
HPS covers you up to age 65 or until your home loan is paid up, whichever comes first.
Depending on the MRTA, you could be covered from between 5 to 35 years, with some even covering you until the age of 84!
This allows you to have more flexibility, especially at times when you find yourself paying your home loan beyond the age of 65.
What about the premium terms for HPS and MRTA?
The HPS premium terms are fixed – you need to pay an annual premium for 90% of your coverage period. That means if you are covered for 20 years, you only need to pay for 18 years.
There are a variety of MRTA premium payment options. Some allow you to pay until 2 years before the end of the policy term, while others waive premiums for the last 3 years. For some MRTA policies, you even have the option of paying a single premium if you can afford it, instead of setting aside money regularly over the coverage period.
What is Joint Life coverage?
Joint Life coverage is a feature of several MRTA policies, allowing joint owners of a property to be covered under the same policy. Not only does this offer enhanced protection for both owners, but the premiums may even be lower when you apply together.
HPS currently does not offer Joint Life coverage. If both home owners want to be covered under HPS, they will need to apply separately.
There are many alternatives to the CPF Home Protection Scheme!
The above comparison was between HPS and MRTA because they are both mortgage reducing policies. That means they are only designed to cover the outstanding loan amount on your home loan, which will decrease over time.
However, if you want to be exempted from HPS, you do have the choice of several other alternatives, including term life insurance, whole life insurance or even an endowment policy! The amount you’re covered for with these policies do not reduce over time. In fact, with some term life insurance policies in the market today, your premium is comparable to what you would be paying with HPS.
Why is a mortgage reducing insurance policy important?
Whether you go for the Home Protection Scheme, or a Mortgage Reducing Term Assurance policy, or some other alternative, the most important is to ensure that you and your loved ones are sufficiently protected in the event of death, terminal illness or total permanent disability.
By ensuring that your share of the home loan is taken care of, you ensure that your loved ones do not face a long-term financial burden, or worse, losing your home.